Front and Center

By By Peter Lucas

A sophisticated order management system has benefits beyond just keeping the order straight.

No longer willing to unload discontinued items at bargain basement prices to liquidators, Russell Athletic decided in 2005 the time had come to set up a direct sales channel targeted at corporate customers and merchants outside its traditional retail channels to maximize revenues on discontinued merchandise and gather better marketing data.

The centerpiece of the new sales channel was to be an order management system that allowed the manufacturer to perform the tricky task of tracking in real time inventory that will not be replenished in addition to delivering sales data that can be used to craft future promotions tailored to repeat customers based on their purchasing habits.

Order accuracy

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Two months after launching its direct sales sites, Russell Corp. doubled the revenues it would normally earn on discontinued items with a minimal infusion of marketing dollars. The company basically sent an e-mail to prospective customers touting the new site.

The big gain, however, came from effective management of inventory so that buyers were always aware of how much stock was available, right up to the time they entered their billing information. That information helped prevent customer dissatisfaction with the site by ensuring order accuracy.

But what pleased the company most was opening of a lucrative new sales channel that delivered detailed purchasing behavior. “We could never have done this without a good order management system,” says Tony Iannuzzi, vice president of the Artwear brand of Atlanta-based Russell Athletic. “Selling over the Internet is a much more cost effective sales channel and it delivers a viable list of customers to which we can target future promotions.”

Russell Athletic’s experience with order management reflects the increasingly vital role order management systems are playing in the business of multi-channel Internet retailers. No longer can multi-channel retailers afford to rely on order management systems designed around single-channel retailing strategies. Instead they need order management systems that can be integrated across all sales channels.

Real-time inventory data

The increasing importance of order management systems is tied to the rise of the multi-channel shopper, which is typically a retailer’s best customer. Such shoppers expect merchants to pull inventory from one channel to complete a sale in another and to be up-to-the-minute on web site stock-outs.

They also want to receive merchandising suggestions that reflect their shopping preferences and which indicate that the retailer recognizes them when they enter through a different sales channel than the one they bought through previously.

At the same time, retailers are feeling pressure to manage their inventory more effectively on a real-time basis to reduce stocking costs, increase inventory turns, and heighten customer service and satisfaction.

To address these issues, multi-channel retailers are installing order management systems that can deliver real-time data to make inventory readily available across all sales channels, even sub-channels such as eBay.com, forecast inventory and create targeted merchandising strategies without requiring users to have an information technology degree.

The payoff from the new breed of order management systems is the opportunity for multi-channel retailers to lower their supply chain costs while increasing customer satisfaction levels.

“Maximizing existing inventory, rather than holding it in case there is unexpected demand is the big opportunity order management systems offer multi-channel retailers,” says Paula Rosenblum, vice president of retail research for Boston-based Aberdeen Group Inc. “The best order management systems can even look across the entire supply chain to see if a manufacturer is holding inventory for them.”

Reducing fulfillment costs

Multi-channel retailers readily admit that meeting customer purchasing and fulfillment expectations is a top priority. Knowing how merchandise moves through each sales channel and categorizing customer purchases by product type, size, color and other factors make it possible for retailers to recognize their customers’ buying preferences, regardless of the channel in which they are shopping.

Access to such data influences a retailer’s merchandising mix and how much of each item is stocked. Aerosoles.com, which also operates 123 retail locations and a catalog division, uses data from its order management system to prevent overstocking fashion items, despite its reputation among some consumers as a fashion retailer. “We don’t fully commit to fashion items, even though some customers see us as a fashion house,” says Andrew Scott, chief information officer for Aerosoles. “Core selling items are what we commit to based on data from our order management system.”

The Edison, N.J.-based shoe retailer also leverages data from its order management system to refine its merchandising strategy. Aerosoles knows whether a customer shops only during sales or immediately after seasonal or new merchandise arrives and tailors promotions to drive those customers into one of its sales channels. If a promotion is heavily skewed toward online shoppers, the company knows to stock inventory for its web site according to projected response rates. “Knowledge of customer purchases makes this possible,” adds Scott.

Knowing what items to stock and in what quantity can significantly reduce a retailer’s fulfillment costs, which for many multi-channel retailers is rising. In a recent survey by Aberdeen Group of multi-channel retailers, 46% of respondents said they expect fulfillment costs to increase through 2008, 29% saw no change, and 25% said fulfillment costs would decrease.

Re-assigning distribution

By knowing which items to stock and which customers to target promotions to, multi-channel retailers can contain fulfillment costs by moving away from assigning fulfillment from a warehouse closest to the customer’s shipping address toward fulfilling orders from the warehouse containing the necessary inventory. Doing so can reduce the risk of delaying customer orders and rushing to replenish inventory in the wrong locations, only to end up liquidating it, according to Rosenblum. “This creates less stress on allocating inventory to the right channel and allows future inventory forecasts to be aggregated more easily,” she says.

That’s a big plus for retailers who change their inventory mix every few weeks to create freshness of merchandise that keeps customers coming back, such as those specializing in apparel.